457(b) vs. 401(a) Plans: Benefits & Differences

There are key differences between 457(b) plans and 401(a) plans. Below, we cover the basics of each plan and their differences and benefits.

Many employers offer both a 457(b) plan and a 401(a) and there are benefits to an employee enrolling in both.

457(b) Plan vs. 401(a) Plan Comparison Chart

This chart compares the contribution limits for 457(b) plans and 401(a) plans in 2022.

457(b) plans 401(a) plans
Maximum Annual Deferral $23,000 $69,000
"Age 50 Catch-Up" Limit $7,500 None
"Pre-Retirement Catch-Up" Limit $23,000 None

The Benefits of 401(a) and 457(b) Plans

Both 457(b) plans and 401(a) plans allow for tax-deferred contributions that then grow tax-free  until an employee begins to withdraw the funds in retirement. At that time the funds are taxed as ordinary income.  

In a 401(a) plan, employers can make contributions, even if the employee contributes nothing to the plan. However, some employers offer 401(a) plans that require their employees to also make mandatory contributions, with the amount of the contribution being determined by the employer or potentially determined by the employee when first eligible. 401(a) plans can also allow employees to contribute on an after-tax basis. If an employer offers a 401(a) plan that includes a mandatory employee contribution, the employer will explain the terms of the plan to employees. 

Differences Between 401(a) and 457(b) Plans

A 401(a) and 457(b) plan differ in how they are funded, how withdrawals are treated, and how much can be contributed on an annual basis.

As mentioned above, contributions to 457(b) plans are discretionary: Employees, and sometimes employers, make contributions to a 457(b) plan as they choose and can vary their contribution amounts.

With a 401(a) plan, the employer can make contributions, and may require employees to contribute to the plan as well.

457(b) plans and 401(a) plans also have different maximum annual contribution limits.

401(a) plans do not permit catch-up contributions. 457(b) plans have both “Age 50” and “Pre-Retirement” catch-up contribution options. This means that, after age 50, people with 457(b) plans can make extra contributions up to a certain amount; and in the three years before their normal retirement age, they can make “Pre-Retirement” catch-up contributions that could potentially double the annual contribution limit for the year, subject to certain limitations.

Another difference is the potential for an early withdrawal penalty from a 401(a) plan for distributions taken before age 59½. This early withdrawal penalty doesn’t apply to distributions from 457(b) plans (assuming the plan contains only 457(b) assets; any assets rolled in from another retirement plan could be subject to the penalty).

Offering a 401(a) and 457(b) Plan Together

Because 401(a) plans have strict rules for employee contributions, and 457(b) plans can offer elective deferrals, and since they have separate contribution limits, it can make sense to offer a 401(a) and a 457(b) plan together. In this case, an employee can maximize contributions to their 457(b) plan and enjoy the contributions the 401(a) offers without having to contribute themselves. An employer can also set up a 401(a) plan that offers an employer match based upon what an employee contributes to a 457 plan.

Start a Plan – Plan Sponsors

If you’d like to discuss how MissionSquare would manage your employees’ 457(b) plan or 401(a) plan, contact us.

Enroll in a 457(b) Plan – Employees

If you’d like to discuss with MissionSquare how to enroll in your retirement plan, contact us.

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